If Only Krugman Were To Understand His Biggest Mistake
Paul Krugman recently expressed to his readers what he believes to be his biggest mistakes:
“Again, we all make mistakes. However, my own biggest mistakes have come either on issues where my models offered no guidance, like the economic impact of information technology, or in cases where I disregarded my models and went with my gut, like my overestimation of the impact of the Bush deficit.”
Krugman’s biggest mistake is that he doesn’t understand his biggest mistake!You see, Krugman views the economy as if it were a giant lab experiment. Economics, in his world, is treated like a physical science, such as chemistry. Turn a few knobs here, adjust a few metrics there, tweak some mathematical models elsewhere, and presto!When Krugman makes a mistake (which is quite frequently) he falls back on blaming his “models,” or his “gut” for not trusting his models. The man always has an excuse.
Sadly, Krugman will most likely never understand his greatest mistake. His entire career is dependant on him at least never admitting it.
The truth of the matter is that economics is not like the mechanical and physical sciences. Murray Rothbard explained that:
...it is the essence of human beings that they act, that they have goals and purposes, and that they try to achieve those goals. Stones, atoms, planets, have no goals or preferences; hence, they do not choose among alternative courses of action. Atoms and planets move, or are moved; they cannot choose, select paths of action, or change their minds. Men and women can and do. Therefore, atoms and stones can be investigated, their courses charted, and their paths plotted and predicted, at least in principle, to the minutest quantitative detail. People cannot; every day, people learn, adopt new values and goals, and change their minds; people cannot be slotted and predicted as can objects without minds or without the capacity to learn and choose...
To become truly "scientific" like physics and the other natural sciences, then, economics must shun such concepts as purposes, goals and learning; it must abandon man's mind and write only of mere events. It must not talk of changing one's mind, because it must claim that events are predictable...
Robert Wenzel, of EconomicPolicyJournal.com has pointed out many times:
Krugman has no theory and attempts to spin tales based on whatever the current empirical data show, and...he is quite willing to reverse his tales 180-degrees based on the new circumstances.[...]
Wenzel continues that an economist must:
...deduce from basic principles, and here I direct you to Human Action by Mises, to see how this is done. Using deductive logic, Mises creates the entire theory of economics. Theory that holds over time and does not have to be changed with every new data set.
Krugman, and his many Keynesian cohorts, are unfortunately going to have to learn the hard way as to where their “biggest mistake” lies. Sadly, it’ll be in the form of extravagant economic hardship for Americans.The silver lining is contained in the fact that good ideas are capable of replacing bad ideas. At some point, the prospects will be available for a rock-star Nobel Prize winning economist to be someone who completely understands that economics is not like the physical sciences, and that the economy is not a playground for wild experimentation.